March 16, 2016

Office of the Under Secretary for Domestic Finance

Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Re:
Notice Seeking Public Comment on the Evolution of the U.S. Treasury Market Structure Docket ID:
TREAS-DO-2015-0013
Convergex appreciates the opportunity to provide our thoughts for consideration as it responds to the Five
Agencies Joint Staff Report analyzing the events of October 15, 2014 in the U.S. Treasury Market.
A properly functioning U.S. Treasury market is important for three reasons. First, it serves the people of the
United States through the funding of their Government. Second, Treasuries are the most secure and risk free asset
in global capital markets and are a safe haven investment during periods of volatility and a source of collateral in
any market environment. Third, it comprises an important part of many governmental, institutional and retail
investor portfolios, both in the U.S. and around the world.
Therefore, a properly functioning U.S. Treasury market is a national priority and market participants need
to put that societal mandate ahead of purely commercial concerns as they consider changes to current
business practices. In addition, we agree with SIFMA and Securities and Exchange Commission Chair, Mary Jo
White, that a one-size fits all approach which simply grafts the market structure of another asset class, such as U.S.
equities, onto existing Treasury market structure is not the right path. We can, and should, take the very best of
best practices from across regulatory and market structure paradigms as we improve upon the current U.S.
Treasury market.
We would like to offer four considerations as SIFMA develops its perspective on this important set of
topics. As the structure of the U.S. Treasury market evolves, it must do so taking into account the interests of ALL
market participants. The ability to provide a modern liquid market, while not adversely affecting the ability of the
U.S. government to fund itself, is paramount.
#1: A more unified marketplace. Currently, the U.S. Treasury market structure is composed of two separate
structures. The customer to dealer (C2D) network and the inter-dealer broker (IDB) network. Each has its own
customer base as well as its own strengths and weaknesses, but the intersection between them is limited. We
believe the U.S. Treasury market would benefit from moving to an all to all marketplace, where every participant
can interact with each other. This will improve the overall functioning of the market as market participants with
disparate points of view on interest rates, macro risk and other factors can find the other side of a trade more
efficiently. The ability of correlated and non-correlated flows to match up against each other more often also may
increase liquidity and limit outsized market moves on extremely volatile days.
#2: Transparency. We need to leverage technology to bring pre-trade transparency to the decision making
process which will increase a market participants ability to make decisions on liquidity provisioning and availability.
While price and trade data exists for the electronic trading of U.S. Treasuries in the secondary IDB market, dealer
trades with investors do not have the same level of transparency. Price and trade data are available from IDBs for a
fee, but no such data is provided by the dealers, thus leaving a void in overall information. The goal of any market
structure framework should be to provide the investment community with access to the best prices. This can be
achieved by requiring all the systemically important market makers and IDBs contributing to a consolidated pricing
mechanism for all participants to see. This should have the effect of facilitating competition and narrowing spreads.

An important part of the U.S. Treasury market still involves principal trading by large banks. Therefore, we believe it
is prudent to consider all unintended consequences that may curtail the banks ability to continue to be able to
warehouse risk. We believe that it makes sense to delay the reporting of large trades rather than report them in real
time in an effort to protect this valuable aspect of current market structure.
#3: A focus on Best Execution. Under the existing market structure, asset managers may not be meeting their
potential best execution objectives because they only have access to liquidity through the dealer network. A best
execution mandate should have the effect of tightening spreads and increasing liquidity when combined with the
democratization of the asset class.
#4: A system that functions as a systemic shock absorber. Unlike most capital markets where risk assets
trade (e.g., equities, corporate bonds, options, etc.), the U.S. Treasury market sees its greatest demand when
general market risk aversion is rising. It is during those times that Treasury market structure must be most robust.
Any change to the market structure needs to ensure measurable liquidity in times of stress. At times of imbalanced
risk transfer, whether they be flash rallies or flash crashes, potential lack of liquidity is simply unacceptable if the
U.S. dollar is to remain the worlds reserve currency and U.S. Treasuries the preeminent risk free asset. Allowing
all participants to have equal access to both the primary dealer distribution network as well as secondary markets
will increase liquidity and limit potential volatility while continuing to focus on iron-clad robustness.
In summary, we believe that there are four key attributes that should collectively guide SIFMA and all
market participants as they consider changes to U.S. Treasury market structure. The first is democratization:
give broad market access and information to a greater number of participants. Second is liquidity: simply put, more
natural liquidity interacting with other order flow generally makes for healthier markets. Third is transparency/best
execution: best execution requires transparency. Improve transparency and it becomes easier to measure best
execution. Lastly and most importantly is confidence: U.S. Treasuries need to trade in a system that is every bit
as robust as the full faith and credit of the United States, not just for U.S. capital markets but for the global financial
system as a whole.
Convergex appreciates the opportunity to comment on the Treasury RFI and your consideration of our above
response. Please do not hesitate to contact me with any questions or for further information.
Sincerely,

Eric Noll
President and CEO